Scope Ratings today assigned a rating of BBB with stable outlook to BNP Paribas’s newly issued 7.375% USD 1.5bn perpetual fixed rate resettable Additional Tier 1 notes. This issue is a low-trigger instrument (5.125% transitional CET1 ratio) with temporary write-downs features.

Scope noted that the BBB ratings stand four notches below BNP Paribas’s Issuer Credit Strength Rating (ICSR) of A+. These four notches are the minimum level applied to bank’s AT1 securities – as detailed in Scope rating methodology for bank capital instruments.

Scope finds the gap to combined buffer requirement (CBR) currently very ample, at 6.3% (or EUR 39.7bn – based on minimum CET1 requirements for 2015), and largely supported by available distributable items of EUR 20.6bn (YE 2014, source: BNP Paribas). Scope notes nonetheless that the gap to CBR could reduce to 1% by 2019 as BNP Paribas’s capital requirements get fully-phased. However, we note that this gap would still represents close to EUR 6.5bn (on our estimates and based on fully-phased Q2 2015 RWAs) while the annual earnings generation of the bank (around 100bps of CET1) leaves it ample margin of manoeuvre to adjust its CET1 ratio target if necessary. As a result, Scope sees limited additional coupon cancellation risk.

Scope also noted that BNP Paribas’s Tier 1 capital notes have not been notched further for principal loss absorption risk. This is due to the currently very ample distance between BNP Paribas’s transitional CET1 ratio of 10.8% as of Q2 2015 and the trigger of 5.125%. The distance to trigger represents EUR 36bn as of Q2 2015.

Scope added that the very comprehensive and transparent prospectus added an additional degree of security for the holders of the note.